New rules to help NZ construction companies

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New government procurement rules for New Zealand recently came into force to help keep construction companies afloat by promoting better practices when awarding multi-million dollar construction projects.

Commenting on the new rules, Economic Development Minister, Phil Twyford said: “The ‘lowest-price model’ approach used across the sector resulted in construction companies cutting costs and under-cutting each other so intensely that some projects became financially unviable. In the worst cases, companies collapsed before construction was completed, resulting in sub-contractors not being paid.

“The new rules move away from a ‘lowest-price model’ to a ‘broader-outcome model’ which has to take into account the financial health of the construction company, the health and safety of its workers and the environmental health of the building.”

The new wide-ranging Government Procurement Rules came into effect on October 1 and use the Government’s annual procurement spend to achieve better public value, by targeting ways to improve cultural, social, economic and environmental outcomes.

The rules refer to new Construction Procurement Guidelines which require government departments to consider factors including skills development and training undertaken by construction companies and their subcontractors, whether there is strong governance over the project and sustainable building practices such as using sustainable materials and minimising waste.

Building and Construction Minister, Jenny Salesa said: “The new guidelines help address some of the key concerns raised through the Construction Sector Accord, including a focus on the whole-of-life public value and reducing financial risk.

“We are helping boost the resilience of construction companies by being more transparent in contracting about what risks exist and who is liable for managing them. This allows for fairer pricing, fairer margins, and less likelihood of unexpected financial shocks. It considers the whole-of-life value to the public of construction, not just the initial costs.

“This initiative is part of the Government’s comprehensive plan to address the long-term challenges the sector faces through lasting system and behavioural changes. Government contracts make up 18% of all large-scale construction projects.”

Twyford added: “We are now making an effort to use our collective government spend to make a difference where it counts. This is about the Government leading by example, and we hope the private sector will follow suit.”

The Construction Procurement Guidelines are available here:

And the Health & Safety Guide here:

The construction sector is New Zealand’s fourth-largest employer, providing work for nearly 250,000 people. However, the industry is characterised by multiple long-term issues such as skills and labour shortages, poor risk-management, unclear regulations and a lack of coordinated leadership, which have never previously been cohesively addressed.